The Australian Securities and Investments Commission has accused Hanlong Mining managing director Steven Hui Xiao of making $720,000 by trading CFDs with inside information, while it said vice-president Calvin Zhu, employee Fan Zhang and two others were also trading CFDs in the lead-up to Hanlong’s bids for the two companies.

The accusations follow the record four-and-a-half-year jail sentence handed to John Hartman last year, who also used CFDs in insider trading.

CFDs offer traders full exposure to a share’s price movement for only a small deposit. Australia’s CFD market is dominated by over the counter providers IG Markets and CMC Markets, who offer CFDs on most stocks, including Sundance and Bannerman.

IG Markets’ head of compliance Natalie Beirne said traders were instructed to watch out for unusual trading activity. The broker was obliged to report suspicious trades to ASIC.

“We would be looking for different types of activity and different patterns in trading," Ms Beirne said.

“We are looking at information in relation to company announcements as well as information that we might hold about a client, where they work and what they do."

IG Markets was called to assist ASIC in its investigations into Mr Xiao, according to court documents, while CMC Markets offered information in regards to trading by private company Wingatta, which listed Mr Zhang as its sole director.

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ASIC chairman Greg Medcraft has taken a strong stance against CFDs recently, particularly in their use by retail investors.

CFD providers are not required to report most trades to ASIC or the wider market. Only trades of ASX-listed CFDs are reported, which sources estimated made up less than 20 per cent of all CFD trades on equities. Sundance and Bannerman CFDs are not able to be traded through the ASX.

CFDs have been used in three insider trading cases referred to ASIC since August 2010, when the regulator was charged with overseeing the market. ASIC has received 29 referrals relating to insider trading in that time.

City Index head of dealing Biyi Cheng said his company put new clients on a watchlist while they were building their positions in an effort to spot insider trading.

IG Markets’ Ms Beirne said traders were particularly watchful of trading around company announcements.